Issue: Small Biz & Obamacare

Posted On December 08, 2012

Laurence Léveillé

Many small-business owners are scared of the potential outcomes of the nation’s new health care law, called Obamacare.

“We are already seeing – in our members and other people who talked to us – businesses are frightened to death,” said Bob Graboyes, senior fellow of health and economics for the National Federation of Independent Business Research Foundation. The federation, headquartered in Nashville, Tenn., is the trade group representing small businesses.

Until Obamacare goes into effect, many small businesses are less likely to offer employees health insurance because of its costs. Only 50 percent of businesses with three to nine employees and 73 percent of those with 10 to 24 employees offer insurance, according to the non-partisan health care research organization Kaiser Family Foundation. That compares to 98 percent coverage in businesses with more than 200 employees.

But new health care law – also called the Affordable Care Act and passed by Congress in 2010 – was created to cover the majority of the nation’s 48.6 millionuninsured Americans. The law requires individuals to buy insurance if their employers don’t provide it. It also requires small businesses to offer health insurance to their employees. The requirements on small businesses go into effect in January 2014.

Provisions in the law for small businesses include:

The Small Business Help Options Program will give small businesses the chance to buy health insurance through an exchange.

If businesses with more than 50 employees do not offer health insurance to full-time employees, they will have to pay a penalty of $2,000 per employee.

To ease the financial burden on small business, the law provides that those with fewer than 25 employees would get a tax credit, which would last two years.

Many small businesses had held off on implementing the health care law, which faced the possibility of repeal if Republicans had won the presidency. Now, with President Barack Obama’s re-election, some small businesses and their trade group hope to change parts of the law even as they start trying to meet the law’s requirements.

Some experts and businesses agree that the law will help businesses and employees. Others, including the small-business trade group, predict the health care law will hurt businesses through its costs and penalties. Critics say that will cause small businesses to hire fewer workers and downsize their workforces.

Leonard Burman is the Daniel Patrick Moynihan Professor of Public Affairs at the Maxwell School of Citizenship and Public Affairs and specializes in health care. Despite some fears among small businesses, Burman said, the new health care provisions will allow small businesses to compete against larger firms.

The law helps small businesses give insurance to their employees at a cheaper cost through buying exchanges, Burman said. In addition, some employees whose incomes are below the poverty level can get subsidies up to 9.5 percent of their income to defray employees’ share of the insurance cost.

This provides employees with access to health care they did not previously have, Burman said. And that could help small business in competing for workers. “It reduces the competitive disadvantage that you face as a firm compared to large firms that can offer health insurance for a pretty low cost to their employees,” he said.

For firms with 50 or more employees, Burman said, it is understandable for them to be worried. “Small businesses are often operating on the brink of bankruptcy,” he said. “It’s hard. A lot of small businesses fail every year.” But, Burman added, the health care benefits can be used to substitute what would have otherwise been wage increases.

Worries for small businesses include costs tied to the law, penalties and the possibility of bankruptcy, said Graboyes, the senior fellow of health and economics for the small-business federation. The provisions have affected hiring decisions and caused employers to avoid expansion, he said. Instead, they have considered downsizing the number of workers to avoid penalties and bankruptcy.

Business owners who see an opportunity to expand beyond 50 employees choose not to in fear that the health insurance mandate will kick in, Graboyes said. This affects the business workforce and profit.

Some restaurant chains have said they will pass along the insurance cost in higher prices to their customers. For example, Papa John’s pizza chain will raise prices by 11 to 14 cents to provide health insurance for its full-time employees.

In addition, the $2,000 penalty is more than some restaurants can make a year in profit per employee, Graboyes said. He said, “And so that penalty alone has the potential to completely wipe out a profitable business and turn it into a loser.”